- The Washington Times - Thursday, March 9, 2006

Consumers in Maryland are being dealt a belated blow from last year’s Gulf Coast hurricanes as they face for the first time sharply higher electricity bills, ironically made worse by years of regulation artificially holding down electricity rates.

The cost of two chief power-producing fuels — natural gas and oil — nearly doubled in the fall as a result of the devastation of Gulf oil and gas facilities by Hurricanes Rita and Katrina. Fuel costs for electric utilities rose by a record amount to $90 billion nationwide from $68 billion in 2004.

The Potomac Electric Power Co. (Pepco) says its cost for coal, oil and natural gas — its three principal fuel sources — are up from 150 percent to 400 percent since 1999, with much of that increase in the last six months.

“Escalating fuel costs have pushed up wholesale power prices and are beginning to deliver rate shocks to retail customers,” said Lawrence J. Makovich, managing director at Cambridge Energy Research Associates.

“The backlash against rate shocks has begun and will likely intensify,” he said, because Virginia, Maryland, the District and the rest of the Mid-Atlantic region soon may be facing power shortages that will further raise costs for consumers.

Growth in the use of electricity has been brisk, partly because rate caps aimed at holding down consumer costs have made it attractive compared with other fuels like heating oil and natural gas, prompting consumers and businesses to switch to electricity when possible.

The growth in demand has pushed up wholesale prices, but utilities such as Pepco and Baltimore Gas and Electric Co. have not been able to fully recoup their wholesale costs, which were “deregulated” in 1999.

The financial squeeze made it difficult and economically undesirable for such utilities to add power-generating capacity as demand increased, despite looming shortages, Mr. Makovich said.

Without rate increases that would permit power companies to increase production, the Cambridge think tank predicts that Virginia will start experiencing power shortages next year, and the District and Maryland will follow in 2008.

Mr. Makovich expects resistance from consumers and state legislatures to prevent some utilities from passing on their higher costs, forcing them into financial difficulty.

The scenario is reminiscent of the California energy situation in 2000 and 2001, when consumers and politicians balked at similar-sized rate increases and ultimately forced one of the state’s biggest utilities into bankruptcy, he said.

Analysts say the situation on the East Coast this year could have been worse as the fifth mildest winter on record prevented spot power prices from soaring even more than they did.

The warm winter shrunk fuel use across the board, causing a dive in oil and gas prices to pre-hurricane levels. Natural gas is now hovering around $7 per million British thermal units in U.S. markets — about the same as a year ago — but that is still three times the rate in 1999.

Analysts expect oil and gas prices to stay volatile as supplies remain scarce.

Energy Secretary Samuel W. Bodman said yesterday that 17 percent of Gulf production shut down by the hurricanes may never be recovered because the fuel lies in old deposits that are too depleted to justify the cost of rebuilding drilling facilities.

Utilities such as Pepco, which does not generate power but rather purchases it on the wholesale market, are as much at the mercy of the volatile energy markets as consumers.

“We can’t do anything to change the cost of energy commodities,” which are often set in global markets, said Tom Graham, regional president of the utility that serves 745,000 Maryland and D.C. residents. But he said he understands why customers are riled about rate increases averaging nearly 50 percent, or $40 a month, in Maryland.

The increases, based on a bidding process in which the utilities buy electricity on the wholesale market, were announced this week by the Maryland Public Service Commission, which regulates utilities, though lawmakers are threatening to stop or slow the rate rise.

LOAD COMMENTS ()

 

Click to Read More

Click to Hide